ILPC 2027

In this paper, we study the differences in the quantity and quality of jobs between foreign-owned and domestic firms in Sub-Saharan Africa, using firm-level data from the UNIDO Africa Investor Survey. We also identify how country-level institutional factors determine these differences. With this paper, we contribute to the literature in four ways. First, we focus on Sub-Saharan Africa and provide novel empirical evidence on the difference in the quantity and quality of jobs between foreign-owned and domestic firms in this region. Second, our analysis is novel as we consider the heterogeneity of foreign ownership and study whether foreign direct investment relates differently to the quantity and quality of jobs depending on the investment motive. Third, we include a detailed analysis of previously unresearched dimensions of job quality, including the provision of training by type of worker and employment by type of contract. Finally, we identify how country-level factors such as firing costs, governance quality, and social inclusion, determine the difference in job quantity and quality between domestic and foreign-owned firms. There is very limited knowledge of the implications of FDI for the quantity and quality of jobs in Sub-Saharan Africa. This knowledge, however, is important in order to better understand the role that inward FDI can potentially play over the coming decades in absorbing the rapidly growing working-age population into decent jobs. The paper includes several key findings. First, we find that foreign-owned firms employ more permanent full-time workers than domestic firms, after controlling for numerous firm-level characteristics in regressions. Foreign-owned firms are also less likely to offer temporary work and employ a smaller number of temporary workers. However, differences between foreign-owned and domestic firms are smaller in countries with higher firing costs, which are likely to induce domestic firms to offer more stable and secure jobs than in other countries. Second, we find that foreign-owned firms invest more in training, in particular for managers, and pay higher wages to non-production and managerial workers. Higher wages for production workers are only paid by firms whose owner is from a high-income country. We find better governance and social policy standards to decrease wage differences between foreign-owned and domestic firms, which is likely driven by domestic firms being induced to pay wages that are closer to wages paid by foreign firms. Finally, we document that the motive and type of foreign ownership has an impact on the quantity and quality of jobs offered by foreign-owned firms. Foreign-owned firms whose main business purpose is to export back to the home country are less likely to employ temporary workers and employ a lower share of these workers, when compared with other foreign-owned firms. Also, foreign-owned firms which were created as green-field investment pay lower wages to managerial workers as compared to previously domestic firms which became foreign-owned through mergers and acquisitions and to firms which remain domestic. Apart from documenting the important role of institutions, our findings suggest that multinational enterprises tend to transplant, at least to some extent, their human resource practices into their foreign affiliates. Hence, their presence in Sub-Saharan Africa is likely to be beneficial for workers, at least on average.